NEITHER
      THESE SECURITIES NOR THE SECURITIES FOR WHICH THESE SECURITIES ARE EXERCISABLE
      HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
      SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
      REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
      ACT"),
      AND,
      ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
      REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
      EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
      REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE STATE
      SECURITIES OR BLUE SKY LAWS. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON
      EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
      MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES. 

     

    CHINA
      ENERGY RECOVERY, INC.

    WARRANT
      

    


    
      	
              Warrant
                No. [__]

            	
              Dated:
                June 20, 2008

            


    

    


     

    CHINA
      ENERGY RECOVERY, INC., a Delaware corporation (the "Company"),
      hereby certifies that, for value received, ARC China, Inc., a Delaware
      corporation, or its registered assigns (the "Holder"),
      is
      entitled to purchase from the Company up to a total of 750,000 shares of common
      stock, $0.001 par value per share (the "Common
      Stock"),
      of
      the Company (each such share, a "Warrant
      Share"
      and all
      such shares, the "Warrant
      Shares")
      at an
      exercise price equal to $2.16 per share (as adjusted from time to time as
      provided in Section
      9,
      the
      "Exercise
      Price").
      This
      Warrant (this "Warrant")
      shall
      vest and be exercisable in accordance with Section
      4
      and
      expire on the 60 month anniversary of the date hereof (the "Expiration
      Date").
      This
      Warrant is being issued pursuant to a Consulting Agreement dated as of June
      20,
      2008 by and between the Company and the Holder (the "Consulting
      Agreement").
      

     

    1.    Definitions.
      In
      addition to the terms defined elsewhere in this Warrant, capitalized terms
      that
      are not otherwise defined herein have the meanings given to such terms in the
      Consulting Agreement. 

     

    2.    Registration
      Rights.
      The
      Company shall register the Warrant Shares in accordance with the terms of the
      Consulting Agreement. The Company may deem and treat the registered Holder
      of
      this Warrant as the absolute owner hereof for the purpose of any exercise or
      registration hereof or any distribution to the Holder, and for all other
      purposes, absent actual notice to the contrary. 

     

    3.    Registration
      of Transfers.
      The
      Company shall register the transfer of any portion of this Warrant in the
      Company's books and records, upon surrender of this Warrant, with the Form
      of
      Assignment attached hereto duly completed and signed, to the Company’s transfer
      agent or to the Company at its address specified herein. Upon any such
      registration or transfer, a new warrant to purchase Common Stock, in
      substantially the form of this Warrant (any such new warrant, a "New
      Warrant"),
      evidencing the portion of this Warrant so transferred shall be issued to the
      transferee and a New Warrant evidencing the remaining portion of this Warrant
      not so transferred, if any, shall be issued to the transferring Holder. The
      acceptance of the New Warrant by the transferee thereof shall be deemed the
      acceptance by such transferee of all of the rights and obligations of the Holder
      of a Warrant. 

     


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

    4.    Vesting;
      Exercise and Duration of Warrants.
      

     

    (a)    Vesting.
      Subject
      to Section
      4(b)
      below,
      the Warrant will vest and be exercisable according to the following
      schedule:

     

    (i)    Warrants
      to purchase 250,000 Warrant Shares shall vest and be exercisable on the date
      hereof;

     

    (ii)    Warrants
      to purchase 5,000 Warrant Shares shall vest and be exercisable on the date
      of
      the Company’s receipt of each $1,000,000 in gross proceeds in each Financing
      during the Term of the Consulting Agreement, up to a maximum of 250,000 Warrant
      Shares; provided that Warrants shall not vest for increments of less than
      $1,000,000 in gross proceeds received by the Company in a Financing during
      the
      Term of the Consulting Agreement (by way of example only, if $12,500,000 in
      gross proceeds are received by the Company in a Financing, Warrants to purchase
      60,000 Warrant Shares shall vest and be exercisable in connection with such
      Financing); and 

     

    (iii)    Warrants
      to purchase 250,000 Warrant Shares shall vest and be exercisable upon a transfer
      of the quotation of the Company's Common Stock from the OTCBB to the Nasdaq
      Stock Market or the American Stock Exchange. 

     

    (b)    Termination.
      In the
      event the Consulting Agreement is terminated by the Company for any reason
      or
      for no reason, all unvested portions of the Warrant on the effective date of
      such termination shall become fully vested and immediately exercisable. In
      the
      event that the Consulting Agreement is terminated by the Holder for any reason,
      all unvested portions of the Warrant on the effective date of such termination
      shall be forfeited by the Holder. 

     

    (c)    Exercise.
      Subject
      to the vesting requirements set forth in Section
      4(a)
      and the
      termination provisions set forth in Section
      4(b)
      above,
      this Warrant shall be exercisable by the registered Holder at any time and
      from
      time to time on or after the date hereof to and including the Expiration Date.
      At 5:00 P.M., Los Angeles, California time on the Expiration Date, the portion
      of this Warrant not exercised prior thereto shall be and become void and of
      no
      value. 

     

    (d)    Procedures
      for Exercise.
      A
      Holder may exercise this Warrant by delivering to the Company (i) an exercise
      notice, in the form attached hereto (the "Exercise
      Notice"),
      appropriately completed and duly signed, and (ii) payment of the Exercise Price
      for the number of Warrant Shares as to which this Warrant is being exercised
      (which may take the form of a "cashless exercise" if so indicated in the
      Exercise Notice and if a "cashless exercise" may occur at such time pursuant
      to
Section
      10
      below),
      and the date such items are delivered to the Company (as determined in
      accordance with the notice provisions hereof) is an "Exercise
      Date."
      The
      Holder shall not be required to deliver the original Warrant in order to effect
      an exercise hereunder. Upon the execution and delivery of the Exercise Notice,
      the Company shall issue a New Warrant to the Holder evidencing the right to
      purchase the remaining number of Warrant Shares. 

     

    5.    Delivery
      of Warrant Shares.
      

     


    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    


     

    (a)    Upon
      exercise of this Warrant, the Company shall promptly (but in no event later
      than
      three business days after the Exercise Date) issue or cause to be issued and
      cause to be delivered to or upon the written order of the Holder and in such
      name or names as the Holder may designate, a certificate for the Warrant Shares
      issuable upon such exercise, free of restrictive legends unless a registration
      statement covering the resale of the Warrant Shares and naming the Holder as
      a
      selling stockholder thereunder is not then effective and the Warrant Shares
      are
      not freely transferable without volume restrictions pursuant to Rule 144 under
      the Securities Act. The Holder, or any Person so designated by the Holder to
      receive Warrant Shares, shall be deemed to have become the holder of record
      of
      such Warrant Shares as of the Exercise Date. The Company shall, upon request
      of
      the Holder, use its best efforts to deliver Warrant Shares hereunder
      electronically through the Depository Trust Corporation or another established
      clearing corporation performing similar functions. 

     

    (b)    This
      Warrant is exercisable, either in its entirety or, from time to time, for a
      portion of the number of Warrant Shares. Upon surrender of this Warrant
      following one or more partial exercises, the Company shall issue or cause to
      be
      issued, at its expense, a New Warrant evidencing the right to purchase the
      remaining number of Warrant Shares. 

     

    (c)    The
      Company's obligations to issue and deliver Warrant Shares in accordance with
      the
      terms hereof are absolute and unconditional, irrespective of any action or
      inaction by the Holder to enforce the same, any waiver or consent with respect
      to any provision hereof, the recovery of any judgment against any Person or
      any
      action to enforce the same, or any setoff, counterclaim, recoupment, limitation
      or termination, or any breach or alleged breach by the Holder or any other
      Person of any obligation to the Company or any violation or alleged violation
      of
      law by the Holder or any other Person, and irrespective of any other
      circumstance which might otherwise limit such obligation of the Company to
      the
      Holder in connection with the issuance of Warrant Shares. Nothing herein shall
      limit the Holder's right to pursue any other remedies available to it hereunder,
      at law or in equity, including, without limitation, a decree of specific
      performance or injunctive relief with respect to the Company's failure to timely
      deliver certificates representing shares of Common Stock upon exercise of the
      Warrant as required pursuant to the terms hereof. 

     

    6.    Charges,
      Taxes and Expenses.
      Issuance and delivery of certificates for shares of Common Stock upon exercise
      of this Warrant shall be made without charge to the Holder for any issue or
      transfer tax, withholding tax, transfer agent fee or other incidental tax or
      expense in respect of the issuance of such certificates, all of which taxes
      and
      expenses shall be paid by the Company; provided, however, that the Company
      shall
      not be required to pay any tax which may be payable in respect of any transfer
      involved in the registration of any certificates for Warrant Shares or Warrants
      in a name other than that of the Holder or an Affiliate thereof. The Holder
      shall be responsible for all other tax liability that may arise as a result
      of
      holding or transferring this Warrant or receiving Warrant Shares upon exercise
      hereof. 

     

    7.    Replacement
      of Warrant.
      If this
      Warrant is mutilated, lost, stolen or destroyed, the Company shall issue or
      cause to be issued in exchange and substitution for and upon cancellation
      hereof, or in lieu of and substitution for this Warrant, a New Warrant, but
      only
      upon receipt of evidence reasonably satisfactory to the Company of such loss,
      theft or destruction and customary and reasonable bond or indemnity, if
      requested. Applicants for a New Warrant under

     


    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    


     

    such
      circumstances shall also comply with such other reasonable regulations and
      procedures and pay such other reasonable third-party costs as the Company may
      prescribe. 

     

    8.    Reservation
      of Warrant Shares.
      The
      Company covenants that it will at all times reserve and keep available out
      of
      the aggregate of its authorized but unissued and otherwise unreserved Common
      Stock, solely for the purpose of enabling it to issue Warrant Shares upon
      exercise of this Warrant as herein provided, the number of Warrant Shares which
      are then issuable and deliverable upon the exercise of this entire Warrant,
      free
      from preemptive rights or any other contingent purchase rights of persons other
      than the Holder (taking into account the adjustments and restrictions of
Section
      9).
      The
      Company covenants that all Warrant Shares so issuable and deliverable shall,
      upon issuance and the payment of the applicable Exercise Price in accordance
      with the terms hereof, be duly and validly authorized, issued and fully paid
      and
      nonassessable. The Company will take all such actions as may be necessary to
      assure that such shares of Common Stock may be issued as provided herein without
      violation of any applicable law or regulation, or of any requirements of any
      securities exchange or automated quotation system upon which the Common Stock
      may be listed. 

     

    9.    Certain
      Adjustments.
      The
      Exercise Price and number of Warrant Shares issuable upon exercise of this
      Warrant are subject to adjustment from time to time as set forth in this
Section
      9.
      

     

    (a)    Stock
      Dividends and Splits.
      If the
      Company, at any time while this Warrant is outstanding, (i) pays a stock
      dividend on its Common Stock or otherwise makes a distribution on any class
      of
      capital stock that is payable in shares of Common Stock, (ii) subdivides
      outstanding shares of Common Stock into a larger number of shares, or (iii)
      combines outstanding shares of Common Stock into a smaller number of shares,
      then in each such case, the Exercise Price shall be multiplied by a fraction
      of
      which the numerator shall be the number of shares of Common Stock outstanding
      immediately before such event and of which the denominator shall be the number
      of shares of Common Stock outstanding immediately after such event. Any
      adjustment made pursuant to clause (i) of this paragraph shall become effective
      immediately after the record date for the determination of stockholders entitled
      to receive such dividend or distribution, and any adjustment pursuant to clause
      (ii) or (iii) of this paragraph shall become effective immediately after the
      effective date of such subdivision or combination. 

     

    (b)    Pro
      Rata Distributions.
      If the
      Company, at any time while this Warrant is outstanding, distributes to all
      holders of Common Stock (i) evidences of its indebtedness, (ii) any security
      (other than a distribution of Common Stock covered by the preceding Subsection
      (a)),
      (iii)
      rights or warrants to subscribe for or purchase any security, or (iv) any other
      asset (in each case, "Distributed
      Property"),
      then
      in each such case the Exercise Price in effect immediately prior to the record
      date fixed for determination of stockholders entitled to receive such
      distribution shall be adjusted (effective on such record date) to equal the
      product of such Exercise Price times a fraction of which the denominator shall
      be the average of the closing price of the Company’s Common Stock (as reflected
      on the OTCBB, the American Stock Exchange or the Nasdaq Stock Market) for the
      five trading days immediately prior to (but not including) such record date
      and
      of which the numerator shall be such average less the then fair market value
      of
      the Distributed Property distributed in respect of one outstanding share of
      Common Stock, as determined by the Company's independent certified public
      accountants that regularly examine

     


    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    


     

    the
      financial statements of the Company (an "Appraiser").
      In
      such event, the Holder, after receipt of the determination by the Appraiser,
      shall have the right to select an additional appraiser (which shall be a
      nationally recognized accounting firm), in which case such fair market value
      shall be deemed to equal the average of the values determined by each of the
      Appraiser and such appraiser. As an alternative to the foregoing adjustment
      to
      the Exercise Price, at the request of the Holder delivered before the 90th
      day
      after such record date the Company will deliver to the Holder, within five
      business days after such request (or, if later, on the effective date of such
      distribution), the Distributed Property that the Holder would have been entitled
      to receive in respect of the Warrant Shares for which this Warrant could have
      been exercised immediately prior to such record date. If such Distributed
      Property is not delivered to the Holder pursuant to the preceding sentence,
      then
      upon expiration of or any exercise of the Warrant that occurs after such record
      date, the Holder shall remain entitled to receive, in addition to the Warrant
      Shares otherwise issuable upon such exercise (if applicable), such Distributed
      Property. 

     

    (c)    Fundamental
      Transactions.
      If, at
      any time while this Warrant is outstanding, (i) the Company effects any merger
      or consolidation of the Company with or into another Person, (ii) the Company
      effects any sale of all or substantially all of its assets in one or a series
      of
      related transactions, (iii) any tender offer or exchange offer (whether by
      the
      Company or another Person) is completed pursuant to which holders of Common
      Stock are permitted to tender or exchange their shares for other securities,
      cash or property, or (iv) the Company effects any reclassification of the Common
      Stock or any compulsory share exchange pursuant to which the Common Stock is
      effectively converted into or exchanged for other securities, cash or property
      (other than as a result of a subdivision or combination of shares of Common
      Stock covered by Section
      9(a)
      above)
      (in any such case, a "Fundamental
      Transaction"),
      then
      the Holder shall have the right thereafter to receive, upon exercise of this
      Warrant, the same amount and kind of securities, cash or property as it would
      have been entitled to receive upon the occurrence of such Fundamental
      Transaction if it had been, immediately prior to such Fundamental Transaction,
      the Holder of the number of Warrant Shares then issuable upon exercise in full
      of this Warrant (the "Alternate
      Consideration").
      The
      aggregate Exercise Price for this Warrant will not be affected by any such
      Fundamental Transaction, but the Company shall apportion such aggregate Exercise
      Price among the Alternate Consideration in a reasonable manner reflecting the
      relative value of any different components of the Alternate Consideration.
      If
      holders of Common Stock are given any choice as to the securities, cash or
      property to be received in a Fundamental Transaction, then the Holder shall
      be
      given the same choice as to the Alternate Consideration it receives upon any
      exercise of this Warrant following such Fundamental Transaction. In the event
      of
      a Fundamental Transaction, the Company or the successor or purchasing Person,
      as
      the case may be, shall execute with the Holder a written agreement providing
      that: 

     

    (x)    this
      Warrant shall thereafter entitle the Holder to purchase the Alternate
      Consideration in accordance with this Section
      9(c);
      

     

    (y)    in
      the
      case of any such successor or purchasing Person, upon such consolidation,
      merger, statutory exchange, combination, sale or conveyance, such successor
      or
      purchasing Person shall be jointly and severally

     


    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

     

    liable
      with the Company for the performance of all of the Company's obligations under
      this Warrant and the Consulting Agreement; and 

     

    (z)    if
      registration or qualification is required under the Securities Exchange Act
      of
      1934, as amended, or applicable state law for the public resale by the Holder
      of
      shares of stock and other securities so issuable upon exercise of this Warrant,
      all rights applicable to registration of the Common Stock issuable upon exercise
      of this Warrant shall apply to the Alternate Consideration. 

     

    If,
      in
      the case of any Fundamental Transaction, the Alternate Consideration includes
      shares of stock, other securities, other property or assets of a Person other
      than the Company or any such successor or purchasing Person, as the case may
      be,
      in such Fundamental Transaction, then such written agreement shall also be
      executed by such other Person and shall contain such additional provisions
      to
      protect the interests of the Holder as the Board of Directors of the Company
      shall reasonably consider necessary by reason of the foregoing. At the Holder's
      request, any successor to the Company or surviving entity in such Fundamental
      Transaction shall issue to the Holder a new warrant consistent with the
      foregoing provisions and evidencing the Holder's right to purchase the Alternate
      Consideration for the aggregate Exercise Price upon exercise thereof. The terms
      of any agreement pursuant to which a Fundamental Transaction is effected shall
      include terms requiring any such successor or surviving entity to comply with
      the provisions of this Subsection
      (c)
      and
      insuring that the Warrant (or any such replacement security) will be similarly
      adjusted upon any subsequent transaction analogous to a Fundamental Transaction.
      If any Fundamental Transaction constitutes or results in a change of control,
      the Company (or any such successor or surviving entity) will purchase the
      Warrant from the Holder for a purchase price, payable in cash within five
      business days after such request (or, if later, on the effective date of the
      Fundamental Transaction), equal to the Black-Scholes value of the remaining
      unexercised portion of this Warrant on the date of such request. 

     

    (d)    Number
      of Warrant Shares.
      Simultaneously with any adjustments to the Exercise Price pursuant to
Subsections
      (a)
      or
(b),
      the
      number of Warrant Shares that may be purchased upon exercise of this Warrant
      shall be increased or decreased proportionately, so that after such adjustment
      the aggregate Exercise Price payable hereunder for the increased or decreased
      number of Warrant Shares shall be the same as the aggregate Exercise Price
      in
      effect immediately prior to such adjustment. 

     

    (e)    Calculations.
      All
      calculations under this Section
      9
      shall be
      made to the nearest cent or the nearest 1/100th of a share, as applicable.
      The
      number of shares of Common Stock outstanding at any given time shall not include
      shares owned or held by or for the account of the Company, and the disposition
      of any such shares shall be considered an issue or sale of Common Stock.


     

    (f)    Notice
      of Adjustments.
      Upon
      the occurrence of each adjustment pursuant to this Section
      9,
      the
      Company at its expense will promptly compute such adjustment in accordance
      with
      the terms of this Warrant and prepare a certificate setting forth such
      adjustment, including a statement of the adjusted Exercise Price and adjusted
      number or type of Warrant Shares or other securities issuable upon exercise
      of
      this Warrant (as applicable), describing the transactions giving rise to such
      adjustments and showing in detail the facts upon which such

     


    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    


     

    adjustment
      is based. Upon written request, the Company will promptly deliver a copy of
      each
      such certificate to the Holder and to the Company's transfer agent.


     

    (g)    Notice
      of Corporate Events.
      If the
      Company (i) declares a dividend or any other distribution of cash, securities
      or
      other property in respect of its Common Stock, including without limitation
      any
      granting of rights or warrants to subscribe for or purchase any capital stock
      of
      the Company or any Subsidiary, (ii) authorizes or approves, enters into any
      agreement contemplating or solicits stockholder approval for any Fundamental
      Transaction, or (iii) authorizes the voluntary dissolution, liquidation or
      winding up of the affairs of the Company, then the Company shall deliver to
      the
      Holder a notice describing the material terms and conditions of such
      transaction, at least 20 calendar days prior to the applicable record or
      effective date on which a Person would need to hold Common Stock in order to
      participate in or vote with respect to such transaction, and the Company will
      take all steps reasonably necessary in order to insure that the Holder is given
      the practical opportunity to exercise this Warrant prior to such time so as
      to
      participate in or vote with respect to such transaction; provided, however,
      that
      the failure to deliver such notice or any defect therein shall not affect the
      validity of the corporate action required to be described in such
      notice.

     

    10.    Payment
      of Exercise Price.
      The
      Holder shall pay the Exercise Price in immediately available funds or the Holder
      may satisfy its obligation to pay the Exercise Price through a "cashless
      exercise," in which event the Company shall issue to the Holder the number
      of
      Warrant Shares determined as follows: 

     

    X
      = Y
      [(A-B)/A] 

     

    where:
      

     

    X
      = the
      number of Warrant Shares to be issued to the Holder. 

    


    Y
      = the
      number of Warrant Shares with respect to which this Warrant is being exercised.
      

    


    A
      = the
      arithmetic average of the closing prices for the five trading days (as reflected
      on the OTCBB for "CGYV.OB", or any such symbol as may be assigned in the event
      of a transfer of the quotation of the Company's Common Stock to the Nasdaq
      Stock
      Market or the American Stock Exchange) immediately prior to (but not including)
      the Exercise Date. 

    


    B
      = the
      Exercise Price. 

     

    For
      purposes of Rule 144 promulgated under the Securities Act, it is intended,
      understood and acknowledged that the Warrant Shares issued in a cashless
      exercise transaction shall be deemed to have been acquired by the Holder, and
      the holding period for the Warrant Shares shall be deemed to have commenced,
      on
      the date this Warrant was originally issued pursuant to the Consulting
      Agreement. 

     

    12.    Fractional
      Shares.
      The
      Company shall not be required to issue or cause to be issued fractional Warrant
      Shares upon the exercise of this Warrant. If any fraction of a
      Warrant

     


    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    


     

    Share
      would, except for the provisions of this Section, be issuable upon exercise
      of
      this Warrant, the number of Warrant Shares to be issued will be rounded up
      to
      the nearest whole share. 

     

    13.    Notices.
      Any and
      all notices or other communications or deliveries hereunder (including without
      limitation any Exercise Notice) shall be in writing and shall be deemed given
      and effective on the earliest of (i) the date of transmission, if such notice
      or
      communication is delivered via facsimile at the facsimile number specified
      in
      this Section prior to 5:00 p.m. (Los Angeles, California time) on a business
      day, (ii) the next business day after the date of transmission, if such notice
      or communication is delivered via facsimile at the facsimile number specified
      in
      this Section on a day that is not a business day or later than 5:00 p.m. (Los
      Angeles, California time) on any business day, (iii) the business day following
      the date of mailing, if sent by nationally recognized overnight courier service,
      or (iv) upon actual receipt by the party to whom such notice is required to
      be
      given. The address for such notices or communications shall be as set forth
      in
      the Consulting Agreement. 

     

    14.    Warrant
      Agent.
      The
      Company shall serve as warrant agent under this Warrant. Upon 30 days' notice
      to
      the Holder, the Company may appoint a new warrant agent. Any corporation into
      which the Company or any new warrant agent may be merged or any corporation
      resulting from any consolidation to which the Company or any new warrant agent
      shall be a party or any corporation to which the Company or any new warrant
      agent transfers substantially all of its corporate trust or stockholders
      services business shall be a successor warrant agent under this Warrant without
      any further act. Any such successor warrant agent shall promptly cause notice
      of
      its succession as warrant agent to be mailed (by first class mail, postage
      prepaid) to the Holder at the Holder's last address as shown in the Company's
      books and records. 

     

    15.    Miscellaneous.
      

     

    (a)    Subject
      to the restrictions on transfer set forth on the first page hereof, this Warrant
      may be assigned by the Holder. This Warrant may not be assigned by the Company
      except to a successor in the event of a Fundamental Transaction. This Warrant
      shall be binding on and inure to the benefit of the parties hereto and their
      respective successors and assigns. Subject to the preceding sentence, nothing
      in
      this Warrant shall be construed to give to any Person other than the Company
      and
      the Holder any legal or equitable right, remedy or cause of action under this
      Warrant. This Warrant may be amended only in writing signed by the Company
      and
      the Holder and their successors and assigns. 

     

    (b)    The
      Company will not, by amendment of its governing documents or through any
      reorganization, transfer of assets, consolidation, merger, dissolution, issue
      or
      sale of securities or any other voluntary action, avoid or seek to avoid the
      observance or performance of any of the terms of this Warrant, but will at
      all
      times in good faith assist in the carrying out of all such terms and in the
      taking of all such action as may be necessary or appropriate in order to protect
      the rights of the Holder against impairment. Without limiting the generality
      of
      the foregoing, the Company (i) will not increase the par value of any Warrant
      Shares above the amount payable therefor on such exercise, (ii) will take all
      such action as may be reasonably necessary or appropriate in order that the
      Company may validly and legally issue fully paid and

     


    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    


     

    nonassessable
      Warrant Shares on the exercise of this Warrant, and (iii) will not close its
      stockholder books or records in any manner which interferes with the timely
      exercise of this Warrant. 

     

    (c)    Governing
      Law; Venue; Waiver Of Jury Trial.
      All
      questions concerning the construction, validity, enforcement and interpretation
      of this Warrant shall be governed by and construed and enforced in accordance
      with the internal laws of the State of California, without regard to the
      principles of conflicts of law thereof. Each party agrees that all legal
      proceedings concerning the interpretations, enforcement and defense of the
      transactions contemplated by this Warrant (whether brought against a party
      hereto or its respective Affiliates, directors, officers, stockholders,
      employees or agents) shall be commenced exclusively in the state and federal
      courts sitting in the City of Los Angeles, California. Each party hereto hereby
      irrevocably submits to the exclusive jurisdiction of the state and federal
      courts sitting in the City of Los Angeles, California for the adjudication
      of
      any dispute hereunder or in connection herewith or with any transaction
      contemplated hereby or discussed herein (including with respect to the
      enforcement of any of this Warrant), and hereby irrevocably waives, and agrees
      not to assert in any suit, action or proceeding, any claim that it is not
      personally subject to the jurisdiction of any such court, that such suit, action
      or proceeding is improper. Each party hereto hereby irrevocably waives personal
      service of process and consents to process being served in any such suit, action
      or proceeding by mailing a copy thereof via registered or certified mail or
      overnight delivery (with evidence of delivery) to such party at the address
      in
      effect for notices to it under this Warrant and agrees that such service shall
      constitute good and sufficient service of process and notice thereof. Nothing
      contained herein shall be deemed to limit in any way any right to serve process
      in any manner permitted by law. Each party hereto hereby irrevocably waives,
      to
      the fullest extent permitted by applicable law, any and all right to trial
      by
      jury in any legal proceeding arising out of or relating to this Warrant or
      the
      transactions contemplated hereby. If either party shall commence an action
      or
      proceeding to enforce any provisions of this Warrant, then the prevailing party
      in such action or proceeding shall be reimbursed by the other party for its
      reasonable attorneys fees and other reasonable costs and expenses incurred
      with
      the investigation, preparation and prosecution of such action or proceeding.
      

     

    (d)    The
      headings herein are for convenience only, do not constitute a part of this
      Warrant and shall not be deemed to limit or affect any of the provisions hereof.
      

     

    (e)    In
      case
      any one or more of the provisions of this Warrant shall be invalid or
      unenforceable in any respect, the validity and enforceability of the remaining
      terms and provisions of this Warrant shall not in any way be affected or
      impaired thereby and the parties will attempt in good faith to agree upon a
      valid and enforceable provision which shall be a commercially reasonable
      substitute therefor, and upon so agreeing, shall incorporate such substitute
      provision in this Warrant. 

     

     

    [Remainder
      of This Page Intentionally Left Blank; Signature Page to
      Follow]

     


    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    


    IN
      WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by
      its
      authorized officer as of the date first indicated above. 

    


    


    CHINA
      ENERGY RECOVERY, INC.

     

    By: 
      /s/ Qinghuan
      Wu
      
        

      

    

    Qinghuan
      Wu

    Chief
      Executive Officer

     

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

     

    FORM
      OF EXERCISE NOTICE 

     

    (To
      be
      executed by the Holder to exercise the right to purchase shares of Common Stock
      under the foregoing Warrant) 

     

    To:
      China
      Energy Recovery, Inc. 

     

    The
      undersigned is the Holder of Warrant No. _______ (the "Warrant")
      issued
      by China Energy Recovery, Inc., a Delaware corporation (the "Company").
      Capitalized terms used herein and not otherwise defined have the respective
      meanings set forth in the Warrant. 

     

    
      	
              1.

            	
              The
                Warrant is currently exercisable to purchase a total of ______________
                Warrant Shares. 

            


    

     

    
      	
              2.

            	
              The
                undersigned Holder hereby exercises its right to purchase
                _________________ Warrant Shares pursuant to the Warrant.
                

            


    

     

    
      	
              3.

            	
              The
                Holder intends that payment of the Exercise Price shall be made as
                (check
                one): 

            


    

     

    ____
      "Cash Exercise" under Section
      10 

     

    ____
      "Cashless Exercise" under Section
      10
      (if
      permitted) 

     

    
      	
              4.

            	
              If
                the Holder has elected a Cash Exercise, the Holder shall pay the
                sum of
                $___________ to the Company in accordance with the terms of the Warrant.
                

            


    

     

    
      	
              5.

            	
              Pursuant
                to this exercise, the Company shall deliver to the Holder _______________
                Warrant Shares in accordance with the terms of the Warrant.
                

            


    

     

    
      	
              6.

            	
              Following
                this exercise, the Warrant shall be exercisable to purchase a total
                of
                ______________ Warrant Shares. 

            


    

     

    
      	
              Dated: ________________,
                ________

            	
              Name
                of Holder:

              (Print)
                _________________________

            
	 	 
	 	
              By:
                _______________________________

            
	 	
              Name:
                _____________________________

            
	 	
              Title:
                ______________________________

            


    

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    FORM
      OF ASSIGNMENT 

     

    (To
      be
      completed and signed only upon transfer of the Warrant) 

     

     

    FOR
      VALUE
      RECEIVED, the undersigned hereby sells, assigns and transfers unto
      ________________________________ the right represented by the within Warrant
      to
      purchase ____________ shares of Common Stock of China Energy Recovery, Inc.
      to
      which the within Warrant relates and appoints ________________ attorney to
      transfer said right on the books of China Energy Recovery, Inc. with full power
      of substitution in the premises. 

     

    
      	
              Dated: ________________,
                ________

               

            	
              Name
                of Holder:

               

              Name:
                _____________________________

              By:
                _______________________________

              Name:
                _____________________________

              Title:
                ______________________________

               

              (Signature
                must conform in all respects to name of the Holder as specified on
                the
                face of the Warrant)

            
	 	 
	 	
              Address:

               

              ______________________________

              ______________________________

              ______________________________

            
	 	 
	
              In
                the presence of:

              ___________________________